McKesson Outperforms Google: A Deep Dive into Financial Dynamics

Over the past five years, McKesson Stock (NYSE: MCK), a leader in healthcare supply chain management, has quadrupled its value, significantly outpacing Google (NASDAQ: GOOG), which has faced a decline. In 2023 alone, McKesson’s stock is up 14%, while Google has fallen by 12%. This remarkable growth can be attributed to several key factors:

• A substantial 97% increase in its trailing adjusted P/E ratio from 11x in 2020 to 22x currently;
• A 49% rise in revenues, climbing from $231 billion to $345 billion during the same time period;
• A 28% reduction in total shares outstanding, now totaling 130 million;
• A minor 6% decrease in net income margin from 1.2% to 1.1% over this timeframe.

Conversely, Google’s Stock has increased by 92%. This growth stems from an impressive 174% jump in earnings per share, rising from $2.93 in 2020 to $8.04 in 2024. However, this was partially undermined by a 30% drop in its trailing P/E ratio from 30x to 21x over the same period.

Now, let’s explore these developments in detail. Despite McKesson’s outstanding performance, those looking for a more stable investment than individual stocks may want to consider the High-Quality Portfolio, which has outperformed the S&P 500, achieving returns over 91% since its inception.

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Revenue Growth and Strategic Factors Driving McKesson’s Performance

McKesson has seen its earnings double, fueled by impressive sales growth and operational efficiency. The company’s revenue surged nearly 50%, increasing from $231 billion in 2020 to $345 billion currently, thanks to several critical strategies.

A major factor in this growth was McKesson’s role in the COVID-19 response, acting as the centralized distributor for vaccines, tests, and medical supplies on behalf of the U.S. government. This role significantly boosted revenues during the pandemic. Furthermore, McKesson expanded its pharmaceutical distribution business, capitalizing on the increasing demand for specialty pharmaceuticals, especially in oncology and other complex therapeutic areas that typically yield higher profit margins. Recently, the growth in its pharmaceutical distribution has also been driven by increased prescription volumes for specialty products and GLP-1 medications.

Acquisitions have also played a part in McKesson’s growth. The acquisition of Rx Savings Solutions, OncoHealth, and a controlling interest in Florida Cancer Specialists & Research Institutes have bolstered its capabilities in oncology and biopharma services. Additionally, McKesson’s medical-surgical distribution segment has thrived due to ongoing demand for medical supplies, a trend that began during the pandemic and has persisted.

In terms of profitability, McKesson’s net income has increased 40%, rising from $2.7 billion in 2020 to $3.8 billion today. Despite a slight contraction in its net margin by 10 basis points to 1.1%, McKesson thrives as an intermediary between manufacturers and healthcare providers, where operations typically involve low margins and high volumes.

Moreover, a significant 28% decrease in total shares outstanding, resulting from $13 billion spent on share repurchases over the past five years, has also contributed to earnings growth.

Valuation Increase and Market Stability for McKesson

McKesson has witnessed a doubling of its trailing price-to-earnings ratio from 11x to 22x since 2020, driven by crucial factors. Investors have reacted positively to McKesson’s strategic pivot toward higher-margin businesses, including specialty pharmaceuticals, oncology services, and technology solutions. This transformation indicates a stronger sustainability in profits beyond its traditional distribution operations. The significant revenue and earnings growth corroborates the expansion in its valuation multiple.

The company’s notable performance is evident beyond mere valuation metrics. In 2022, while Google experienced a decline exceeding 30%, McKesson achieved gains of more than 50%. This resilience showcases McKesson as a vital component of healthcare infrastructure, appealing to investors looking for stability during economic downturns. Strong cash generation further enhances its appeal amidst uncertainty in the market.

McKesson’s essential role during the pandemic has not gone unnoticed, underscoring its relevance to public health and contributing to its stock price appreciation. This resilience has been evident in various recent economic challenges. Notably, McKesson Stock experienced a peak-to-trough decline of only 11.0% in 2022, considerably better than the S&P 500’s 25.4% drop. Additionally, during the market turbulence of 2020, McKesson Stock fell by 32.3%, slightly outperforming the S&P 500’s 33.9% decline. Such performance illustrates relative stability even in stressful market conditions.

For investors wary of the unpredictability linked with individual stocks, the Trefis High-Quality Portfolio, which consists of 30 strategically chosen stocks, has outperformed the S&P 500 comfortably over the past four years. What accounts for this success? The HQ Portfolio’s collective performance shows that it offers better returns with reduced risk when compared to the benchmark index, providing a smoother investment experience.

[1] Returns as of 3/17/2025
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.